Question

# The answer to this question is 270,000 but I’m having problems with the calculations, please make...

The answer to this question is 270,000 but I’m having problems with the calculations, please make sure the calculations are legible so I can understand. If a company produces a hard disk drive that sells for \$175 per unit. The cost of producing 25,000 drives in the prior year was:

Direct material \$625,000

Direct labor 375,000

Total cost \$2,625,000

At the start of the current year, the company received an order for 3,000 drives from a computer company in China. Management of has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company’s first international order. On the other hand, the company in China is willing to pay only \$135 per unit. What will be the effect on profit of accepting the order? Answer is 270,000

 Selling Price 175.00 Costs: Total PU Direct Material 625000 25.00 Direct Labor 375000 15.00 Variable OH 125000 5.00 Fixed OH 1500000 TC 2625000 Relevant Costs for Special Order: Costs: PU Direct Material 25.00 Direct Labor 15.00 Variable OH 5.00 Fixed OH 0.00 (Sunk Cost) TC 45.00 Special Price 135.00 Total Relevant Cost 45.00 A Net Benefit PU 90.00 B Special Order Qty 3000 A*B Total Impact on Profits 270000 Hope it clarify your doubts

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